The demand for yak butter is given by 120 − 4pd and the supply is 2ps − 30, where pd is the price paid by demanders and ps is the price received by suppliers, measured in dollars per hundred pounds. Quantities demanded and supplied are measured in hundred-pound units.
(a) On the axes below, draw the demand curve (with blue ink) and the supply curve (with red ink) for yak butter.
(b) Write down the equation that you would solve to find the equilibrium price.
(c) What is the equilibrium price of yak butter? ______. What is the equilibrium quantity? _______. Locate the equilibrium price and quantity on the graph, and label them p1 and q1.
(d) A terrible drought strikes the central Ohio steppes, traditional homeland of the yaks. The supply schedule shifts to 2ps − 60. The demand schedule remains as before. Draw the new supply schedule. Write down the equation that you would solve to find the new equilibrium price of yak butter.
(e) The new equilibrium price is ______ and the quantity is _______. Locate the new equilibrium price and quantity on the graph and label them p2 and q2.
(f) The government decides to relieve stricken yak butter consumers and producers by paying a subsidy of $5 per hundred pounds of yak butter to producers. If pd is the price paid by demanders for yak butter, what is the total amount received by producers for each unit they produce? ________. When the price paid by consumers is pd, how much yak butter is produced? __________.
(g) Write down an equation that can be solved for the equilibrium price paid by consumers, given the subsidy program. __________. What are the equilibrium price paid by consumers and the equilibrium quantity of yak butter now? ________ .
(h) Suppose the government had paid the subsidy to consumers rather than producers. What would be the equilibrium net price paid by consumers? _______. The equilibrium quantity would be _________.